CHAD OIL CONSORTIUM FEELING PRESSURE

UNCLAS SECTION 01 OF 02 NDJAMENA 000880 SIPDIS SENSITIVE SIPDIS LONDON AND PARIS FOR AFRICAWATCHERS; TREASURY FOR OTA E.O. 12958: N/A TAGS: EPET EFIN ENRG PGOV CD SUBJECT: CHAD OIL CONSORTIUM FEELING PRESSURE ¶1. (SBU) Summary: A series of Government of Chad (GOC)-instigated pressures on the Exxon/Mobil-led oil consortium in Chad has led Esso management to conclude that the GOC is once again desperate for cash. Esso feels that they will be able sort out a dispute with the government over alleged unpaid employee taxes from 2000 and ride out a proposed three-day employee strike in July. However, they are concerned that the GOC will either seize bank assets or vehicles once the (expected) final ruling against Esso on back pay to subcontracted employees is handed down. According to Esso management, certain GOC Ministers -- eager to come out looking good ahead of an anticipated cabinet re-shuffle -- may be attempting to demonstrate their loyalty by helping the President scrape together the cash he needs so desperately. End Summary. ¶2. (SBU) Esso Managing Director Ron Royal briefed the Ambassador June 22 on a series of incidents that have affected the oil consortium's operations in Chad. In a meeting June 20 with GOC representatives and representatives of the World Bank/IMF Multi-donor Mission, the Minister of Petroleum announced (without any prior explanation) that "Esso is no longer welcome in Chad." He claimed that Esso was not being "respectful" of Chad. Royal speculated that Esso's last-ditch appeal to the Supreme Court to reconsider the labor decision concerning overtime pay to Esso subsidiary TCC employees was seen by the GOC as a sign of disrespect. While Royal confessed to have been taken aback by the announcement, he noted that later in the week the Minister downplayed the incident. However, no further explanation has been forthcoming. ¶3. (SBU) Royal reported further that on June 21 the Finance Ministry ordered Esso to close its offices. Esso was notified that a Working Group had been created at the Ministry of Finance to investigate allegations of delinquent employee taxes dating from 2000 and 2001. Royal said that the amount in question claimed to be owed the GOC was around $18,000. (Subsequently Esso was given thirty days to provide documentation on payment of employee taxes and allowed to keep its offices open.) ¶4. (SBU) Royal reported as well that on the same day, Esso employees delivered a strike notice to management. In subsequent conversation Esso management reported that they had met with the Minister of Labor, and feel fairly confident the strike will either be averted, or will be held from July 3-5 without major incident. ¶5. (SBU) Of most concern, however, is the fact that the Government of Chad has frozen Esso's local bank accounts since June 21. According to Esso Public Relations Director, Miles Shaw, this has not affected local operations as both local banks allow Esso a line of credit from which they are drawing for local expenses. However, Shaw noted that in the next few days a final ruling on Esso's appeal of the TCC judgment is expected. Esso expects the ruling to be against Esso. Esso Headquarters is still formulating a final position, but Shaw was concerned that the GOC might seize local bank assets or impound Esso vehicles in lieu of prompt payment of the multi-million dollar ruling. ¶6. (SBU) Royal felt that the tension between the GOC and the oil consortium was due to the GOC's need of money. He reported that Esso had been requested to pay an advance of its $10 million estimated tax payment due June 30 (which he refused to do.) Apparently other large companies in N'djamena have also been approached by the Government for alleged delinquencies in employee taxes from 6 years ago. Royal speculated that an anticipated change of cabinet was driving Ministers to prove that they were able to bring in resources. He noted that with the World Bank's payment of the first tranche of frozen resources, the GOC will shortly receive some $50 million. However, because of the oil revenue management scheme, only $12 million of this will be destined for general revenues. Royal pointed out that, if the World Bank does not pay the Second Tranche of frozen royalties, come September the government would be "really hurting." NDJAMENA 00000880 002 OF 002 ¶7. (SBU) In a brief discussion with the Ambassador June 24, Petroleum Minister Mahamat Nasser Hassan shed light on one aspect of Chad's frustration with the Consortium. He complained bitterly about the delay in the start-up of Esso's proposed diesel fuel topping plant. The project was intended to use a portion of Doba crude production to supply the Consortium's own needs; a surplus amount would be available for Chad's use. Fuel from the project was expected to be available by the end of 2006, and even President Deby was counting on this to help address Chad's chronic fuel shortages. According to the Petroleum Minister, the project has been delayed, and will not be ready before 2008. Nasser claimed that Chad had not been informed about the delay by Esso and had only learned about it indirectly from the World Bank. WALL